Tag: The Malaysian Insider

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Society

[1850] Of cosmopolitan Malaysia

As I prepare to leave this country once again for another land, I have rediscovered how diverse the Malaysian society truly is. There are individuals coming from all kinds of background speaking languages of the world. Give it a decade or two and I could see the demographics of this country changing due to immigration — legal or otherwise — from various countries, be it Nepal, Bangladesh or some countries in Europe.

Malaysia has always been at the crossroad of trade. The history of this country is closely associated with the volume of trade. The prominence of various states from Srivijaya to Malacca to the current day Malaysia all is linked to trade. Malaysia itself only truly assumed its place in the world after it dropped its import substitution policy in favor of export-driven policy.

While trade brings wealth, it is larger than simple exchanges of goods and services. As individuals interact with each other to complete various transactions, news and ideas are passed along. It is inevitable for a country so open to trade to welcome foreigners into the land. Some of these foreigners will fall in love with new land and adopt it as their own. Some others would be less romantic and stay here out of necessity.

Despite trouble plaguing the country, Malaysia is the land of opportunity in Asia, perhaps paralleling the United States of America in one way or another.

The history of the Straits Chinese and the Krintangs, to name a few, are testaments to this. The existence of Chinatown, Little India and even Jalan Silang, on top of what traditionally known as native culture, further stresses the diversity of this country.

The continuous intermingling of people will inevitably see the definition of native culture to evolve. It will become more inclusive to accommodate what was used to be considered as foreign. The evolution of the Malay language is a perfect example of such accommodation. The Malay culture itself has adopted cultures from the east to the west during its long history. The evolution is still ongoing.

Opposition to such accommodation may occur. The opposition however, though sometimes could be excessively xenophobic, helps in defining the path of the accommodation. Regardless the path, the destination is almost assured to be greater integration.

The Chinese and the Indians previously viewed as immigrants have been accepted as citizens of this country long ago. While there are those who view these groups as immigrants still, the idea that they are citizens of this country entitled to equal rights is there to challenge the conservatives.

The conservative individuals would continue to oppose the idea but I think the United States is a good example of how the future of equal citizenship is inevitable. And we really do not need to spend centuries to reach where the United States finds itself at the moment simply because we began our journey on a higher ground.

Considerable number of Malaysians, even the conservatives, may be on the verge of coming to term of the inevitability of right egalitarian in Malaysia. The reason is that a new generation is gradually taking over this country. And each new generation, in my humble opinion, has proven to be more opened than their predecessors.

The greater openness is a natural progression of being the benefactors of freer trade and higher education. This opens up the mind of the individuals — the notion of equal rights for all citizens is fast gaining currency and will continue to do so each time a new generation is born to assume the driver seat. Undoubtedly however several issues including the matters on vernacular education will bog down the path to right egalitarian society. Bog it will but stop it will not.

The new challenge is now to learn to accept non-citizens living in this country as individuals. These non-citizens are new migrants of which a majority of them taking up low paying jobs. Just like there are opposition to accepting the Chinese and the Indians as equal citizens of this country, they seem to be opposition of treating these non-citizens more humanely.

For a country which a majority of its people is historically linked to migration of the past, the xenophobic attitude adopted against foreigners, especially against non-western foreigners, is hypocritical.

The xenophobic attitude is easily visible.

It is not at all unusually for locals to blame foreigners for crime committed when in fact most crimes are committed by the locals itself. Not only that most crimes are committed by locals, crimes committed by foreigners are proportionately lower than crimes committed by locals. Yet, the notion that foreigners bring excessive trouble to this country continues to hold sway in spite of data. So, one has to wonder whether the attitude is due to unreasonable bias or real concern for crime rate.

In times when economic uncertainty is in the air, it is a minister no less who said if retrenchment happens, foreign workers should be retrenched first. The issue of retrenchment should be an issue handled by the owners of business and not the government because it is the business owners who face the direct prospect of loss. Yet, here we have a minister — Dr. Subramaniam of the MIC — trying to interfere in the management of business to ensure foreigners suffer first. Chua Soi Lek of the MCA too expressed the same sentiment not too long ago.

This is already on top of the typical protectionist accusation that foreigners are stealing jobs from the locals when in fact, many of the jobs taken up by these foreigners are the jobs the locals mostly are uninterested of. The accusation happens while the massive net contributions foreign workers made to the Malaysian economy are conveniently ignored.

Never mind the fact that the Malaysian economy is possibly operating at full employment at the moment and that demands for more workers are left unfulfilled. The couple of months ahead are likely to see some unfavorable fluctuation to hurt both local and foreign workers but the long term trend is likely to see the demand for workers exceeding the capability of the local market to supply it.

And then there is the issue of how some Malaysians treat some of the foreign workers. It is a relief how the Malaysian court finally set a huge example by sentencing housewife Yim Pek Ha to 18 years of imprisonment for grossly abusing her former Indonesian maid, Nirmala Bonat. Malaysians like Ms. Yim need to realize that individuals like Ms. Nirmala, though foreigners working as a lowly maid, are human beings too. Not just Ms. Yim needs to become cognizant of this, Rela with is abysmal records on treatment of foreigners also must be reminded of it.

Like it or not, some of these foreigners may one day become the citizens of this countries, just like the economic migrants of the 19th century. There will be Nepali Malaysians, Bangladeshi Malaysians, Pakistani Malaysians, Burmese Malaysians, etc. To degrade them is to degrade the story of origin many Malaysians share.

The less talked migration is the one involving citizens of the developed countries relocating to Malaysia. While the Nepalis and the Bangladeshis fill the lower niches, these migrants from developed and rich countries mostly fill the other end, bringing capital as well as valuable expertise with them. The Malaysian government encourages this kind of immigration by the Arabs, the British, the Dutch and the likes through the Malaysia My Second Home program.

Even without the MMSH program, I have already met several individuals born not as Malaysians but have lived as Malaysians far longer than I have been a Malaysian.

And not too long ago, I met an Indian Malaysian with German as her mother tongue. I could only manage to say guten tag while astonished as the diversity that exists at a very micro level. Or perhaps, I was just caught by her beauty and that is all.

All the little things happening on the ground will affect the bigger picture soon or later.

By the time I return to Malaysia some years in the future, I do not think I would be surprise at the demographics of Malaysia then. In fact, I would be excited.

The prospect of a new demographic composition is refreshing for me because it has the potentially of assaulting the old debate about race and ethnicity, forcing both the Malays and the non-Malays traditionally made up of Chinese and Indians to rethink the stale rationale they employ against its others. It will force those with racialist worldview to reassess their idea of Malaysia.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider.

Categories
Liberty Politics & government Society

[1845] Of status quo for the monarchy

Various anecdotes insist that the act of placing a baht note in your pants back pocket is a terrible faux pas to commit in Thailand. It is because all bills have a portrait of Thai King Bhumibol Adulyadej and placing one in that particular pocket is a sign of disrespect. More so if a person actually sits on it. As it goes, anybody caught doing so by the Thais would be admonished, or sometimes worse.

Though the veracity of the anecdotes is unconfirmed, the message is clear: the Thai monarchy commands tremendous respect from the people of Thailand. This enables the King to exert some influence in Thai politics especially in times of turmoil. Perhaps envious of their counterpart up north, several Malaysian royal houses are looking to play greater roles and claim greater power within Malaysian society. Whether that is a good idea is debatable.

This idea first came to mainstream consciousness in recent times when the Thai monarchy apparently brought the country’s political deadlock to an end. This proved to be temporary but at that particular time, it inspired Malaysians to turn to the monarchy in search of ways to challenge the Barisan Nasional-led government.

In a time when the Barisan Nasional government exercised stifling control over almost all tools of the state to silence disagreements towards its policies, it did not take much of a nudge for many Malaysians to imitate their neighbor up north. Bersih, in particular, held a huge rally to raise concerns to the Yang di-Pertuan Agong, in protest of the executive arm of the state.

The support for the monarchy was further strengthened when the royal houses of Terengganu and Perak were deeply involved in the appointment of the Menteri Besar of the respective states. The Sultan of Terengganu rejected the BN-preferred candidate for the MB post, preferring a person more palatable to the taste of the royal house. In Perak, the Sultan played an active role in the appointment to the state’s highest executive office and in doing so effectively resolved the uncertainty that followed immediately after the March 8 general election.

Both episodes demonstrated the capability and the usefulness of the institution. The monarchy proved that it could provide leadership when the situation requires so.

Nevertheless, this does not necessarily mean the monarchy deserves an expansion in role or in power. Rather, it is just the case that the status quo works.

While the status quo works, the role of the monarch over society may have been overstated. Just as Thailand inspired Malaysians to turn to the monarchy, the case for overstatement also inspired the events in Thailand as turmoil riddles the country.

This was seen during the September 2007 coup d’état by the Royal Thai Army. Almost immediately after tanks secured Bangkok, the military rushed to the palace to obtain endorsement from the King. The endorsement however came after the military coup happened, not before. Regardless whether the King was in favor of the military coup mounted against an elected government, the King could have acted merely as a rubber stamp. In a practical sense, it was the military that gained control of Thailand, not the King.

It is true however all the successful coups had the endorsement of the Thai King while the ones that failed — namely in 1981 and 1985 — did not get royal endorsement.

Yet, the military’s action was more or less aligned with the People’s Alliance for Democracy, the group opposed to former Thai Premier Thaksin Shinawatra and the two successive Thai Prime Ministers allegedly tied to him.

PAD positions itself as royalists and assumes yellow — the royal color — as its own. It has frequently accused its rivals of being disloyal to the King. With an association like that, it is hard not to disagree with the PAD without being accused as disloyal, especially in a country which makes criminal any criticism against the royal house.

The frequent accusations of disloyalty however have brought suspicion that the PAD is manipulating its relationship with the royal class to forward its own agenda with gross disrespect for the democratic process.

In any case, Bersih was a show of organic power and hardly had anything to do with royalty. As much as many would want to believe, there is not enough proof to show how receptive the Malaysian King was to the movement. Bersih, like PAD, only associated itself with the monarchy as a strategy to pit the executive and the institution to forward its own agenda.

The democratic process itself is not sacred since from time to time, tyranny of the majority does occur. Democracy does suffer from failure, especially when all its checks and balances have been exhausted.

Early liberals held a deep suspicion for democracy because of the fear of tyranny of the majority. Voltaire, for instance, advocated enlightened absolutism where idiocy of the masses is kept in check while preserving liberty and everything relating to the Enlightenment.

This is the same thinking PAD is applying in rationalising its action. It argued that the majority of Thais — the rural voters — are not educated enough to do the right action, like voting properly. By using this argument, it could basically reject any democratic outcome against its favor and refer to the King who, in its view, is an enlightened monarch.

Liberal thoughts however do not stop at Voltaire, and classical liberals distrust absolutism as much as crass majoritarianism. Evolution of ideas later introduced the concept of liberal democracy superior to Voltaire’s. The monarchy is replaced by a liberal constitution which ferociously defends individual liberty from infringement by the majority.

The reason for the superiority of liberal democracy to an enlightened monarch is obvious: not all monarchs are enlightened. And enlightened monarchs do not exist all the time either. Voltaire, somehow, overlooked this.

In the case of Malaysia, the country has neither an absolutist nor a liberal constitution in its purest sense. The county does however, perhaps, have several enlightened monarchs who are able to rise above the noise to appeal to the greater good. And there is some security over individual liberty in this country. The imperfections in the protection of liberty by the state may sometimes call upon the enlightened monarchs to play, in some ways, part of the role that Voltaire advocated.

Thus, the monarchy finds itself as a check and balance apparatus. In times when the power of the executive is beyond disgust, the resurgence of the monarchy to check the excesses is most welcome.

It has to be noted that the idea of checks and balances imbeds within the system parts which are capable of limiting the power of the other parts and vice versa. If one part has the ability to overwhelm the other, however, the idea of checks and balances simply loses its meaning.

The same applies to the monarchy. If invested with greater power, chances are the monarchy will stop functioning as part of a check and balance mechanism. The greater power could upset any balance that exists in Malaysia at the moment.

And one of the easiest ways to upset the balance is to grant all nine monarchies in Malaysia with immunity. Immunity will place any royalty above the law, well beyond the reach of any check and balance mechanism.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider.

Categories
Economics Environment Science & technology

[1840] Of missed chance for fuel efficiency improvement?

It has been said that necessity is the mother of all inventions. That is certainly true with regards to the introduction of fuel-efficient vehicles in the 1970s. There are several factors that ushered in an era of engines with greater fuel efficiency but one of the most important was the then record-breaking crude oil prices caused by events in the Middle East.

By the 1980s in contrast, there was an oil glut but improvements gained in the previous decade stayed in spite of the downward trend in global crude oil prices. The same trend was again seen in the 2000s. Crude oil prices went up and then down but I fear that we might have missed the wave for fuel efficiency improvement, no thanks in part to intervention by the state in many parts of the world.

In one way or another, many economists have never really doubted that global crude oil prices would come down even when oil prices were going through the roof not too long ago. The rationale behind the idea is closely related to the mainstream growth model which stresses the importance of technology in improving output based on the same input in a status quo scenario. In other words, when prices increase sufficiently high, there is an incentive to look for new and better ways to solve old problems.

The availability of substitutes further strengthens the idea as consumers switch from consuming crude oil to other resources.

And then there is the gospel of economics. With all else being equal, quantity demanded goes down given higher prices.

Therefore, the fall of crude oil prices was never a question of if; there was only a question of when. Some people laughed at this, just as the executives at Shell in the early 1980s laughed. They probably did not even smile when the oil glut set in soon and lasted for about two decades.

In 1980, the famed Simon-Ehrlich wager was entered between entomologist Paul Ehrlich and economist Julian Simon. The wager was made to settle a dispute on whether commodities prices would on average be higher in the future while discounting for inflation.

Ehrlich hypothesized that humanity would face a severe shortage of resources in the long run. Simon believed otherwise. With prices as a signal of scarcity, Ehrlich bet the prices of five commodities would increase in 10 years’ time; Simon bet in the other direction. It was a battle between Malthusian and mainstream economic ideas.

Ehrlich’s hypothesis is not at all insensible but prices of commodities are hardly the best indicators to prove his case. Technology improved in those 10 years. Lesser materials were required for the same activities. Moreover, the availability of substitutes moderated and even prevented the predicted prices increase. In the end, Ehrlich lost the bet.

We are witnessing the same trend at the moment. Global prices of crude oil as well as various commodities have gone up and down. However, the factors which played a part in bringing the prices down may differ from the previous 1970s episode. Instead of technological improvement, based on various newspaper reports, lesser economic activities seem to be the culprit.

Prices of crude oil began the relentless upward march around 2003 only to fall dramatically in the middle of year 2008. People did respond to the situation while prices were high. There is proof that people were switching to smaller vehicles. In Malaysia in September 2008, for instance, sales of compact cars experienced an increase amid dearer retail fuel prices. Electric vehicles meanwhile saw themselves being moved from the fringes of society to almost mainstream in developed economies such as the United States

Despite all that, there is not enough convincing evidence which asserts there is an overall widespread improvement in fuel efficiency. In many ways, these changes are merely transient in nature unlike technological improvements. These changes are transient because they probably would revert once prices go down again. These are cyclical rather than structural changes.

Structural changes unlike cyclical ones have lasting effects. Within the context of fuel efficiency, the changes come in the form of technological improvements which cut across the board.

Because of this, global crude oil prices may return to record-breaking levels once the economy recovers from its flu.

The period of expensive crude oil was an opportunity to improve fuel efficiency of vehicles but unfortunately, the creative destruction associated with free market did not happen as widespread as it had in the 1970s. Then, the introduction of more fuel-efficient Japanese vehicles in the US almost brought the Big Three — General Motors, Chrysler and Ford — to their knees. Vehicles with bad fuel economy were made obsolete and rejected. While the Detroit-based manufacturers are again in trouble, it is not very clear if the main cause is the creative destruction we saw in the 1970s.

The structural changes probably failed to occur due to the fact that almost half of the world population enjoyed fuel subsidies until only recently. The subsidies shielded the consumers from the effect of high global crude oil prices. The disconnection between individuals and the free market prices effectively removed the demand for greater fuel efficiency and conservation in general.

Just as high crude oil prices forced countries to reduce or abandon subsidies, the economic downturn set in to bring fuel prices down. Even when we finally got the chance to meet reality, the impetus for structural improvement in the economy was robbed from us in the nick of time.

The quest for greater fuel efficiency can be grounded on many reasons but for me, the greater reason revolves around the need to reduce carbon emissions in order to mitigate the effects of climate change. Climate change is perhaps the largest tragedy of the commons we have ever seen. It is not at all comforting that a lot of these emissions occur in developing countries with fuel subsidies.

Carbon emissions is one of the reasons why I oppose fuel subsidies. In addressing the tragedy of the commons, technological improvements in fuel efficiency or even downright new sources of energy are crucial. We had the chance to undergo a period of creative destruction but that opportunity has come and gone, for now.

The next time the opportunity knocks on our doors, we must seize it.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider.

Categories
Economics Liberty

[1835] Of freedom to err and to learn

Failure is simply part of life. A world without failure is a fanciful dream incapable of withstanding reality. No matter how much failure hurts, it teaches us valuable lessons for future endeavors. Do it enough while learning from it, and a pot of gold awaits the daring at the end of the rainbow.

Success and failure are just the result of competition for the best answers to questions that beset humanity. Who is the fastest runner in the world? Who blew the biggest balloon ever? Who is the smartest kid in the class? Mirror, mirror on the wall, who is the prettiest among them all?

In search for the best, somebody must lose. Somebody must be in second place, or last. Not all can take the No. 1 position.

How do we cross the ocean? How do we get to the moon? How do we conquer the final frontier? Failures greeted us along the way before we successfully answered the questions. Remember the tragedy of the Apollo 1 and the Space Shuttle Challenger. Their failure led us to learn more about ourselves, our capabilities and our mistakes. It is because we learned that they did not die in vain.

The glorious discovery of scientific methods which played no small part in aiding the relentless progress of humanity itself stands firm as a witness to the importance of failure: observe, hypothesize, predict and test.

If the prediction is successful in verifying the hypothesis in the first try, then congratulations. If no, then hypothesize sensibly anew. Each time we hypothesize and fail, we are one step closer to the answer for we now know yet one more path we should not take, cutting down the odds in our favor. It is simply so because failure eliminates the wrong paths.

We learn from failure by marking the false doors and knocking tirelessly on unopened ones. The whole process, to generalize it crudely, is an exercise in trial and error. Needless to say, repeated trial and error involves failures and successes.

Evolution, for one, is the great trial and error game. Since time immemorial, nature has constantly tried countless combinations to find the building block of life and reach where the whole earthly living world finds itself today. It is through evolution that nature finds the perfect fit for all. It systematically tries everything in its mind and systematically purges failed combinations in favor of the successful results from many trials.

Evolution is a competition of designs, as Eric Beinhocker writes in ”The Origin of Wealth” as he tries to promote complexity in economics to challenge the neoclassical models. Evolution is a contest to look for the best design and eliminate the failed ones. The inherent Darwinism is harsh but trust the evolutionary processes to produce greatness by exercising the liberty to err and the liberty to learn.

The parallel is seen in the free market system. Through the creation of free competition enabled by the free market system, various ideas compete against each other to satisfy our needs, our demands and our questions. The best ideas and decisions will be rewarded while the worst will be punished, as judged by participants of the market. In other words, the free market mechanism simply adheres to the concept that failures eliminate the wrong paths. The free market is evolution.

This is exactly what we have witnessed for the longest time. An economic downturn occurs for a reason and each time it happens it is because of the mistakes which we commit. The irrational exuberance of the 1990s, for instance, saw massive investment into businesses with weak models. When these models failed as the market finally turned around to revolt against our acts of foolishness, so too those who invested in it. We then adjust our expectation to a more reasonable level.

The current economic crisis is characterized by failure to see the mistakes in time. Mistakes of encouraging home ownership with disregard to creditworthiness; mistakes of loose monetary policies to solve the previous economic downturn; mistakes from leveraging too highly while failing to manage risk; mistake of bad regulations. When the mistakes converged as the fruits ripened too much to turn sugar to poison, the time for punishment at long last arrived.

There is no doubt failure is painful but we are only likely to learn something when it is painful. The fear of pain will encourage us to not to repeat the same mistake. We know fire is hot only after we have burned ourselves.

While we learn, we must remember that we are only humans and we are not perfect. Some will learn and some will forget. Some will learn to adapt and others will fail to do so. For those who failed, the system will keep reminding them why they failed.

What we are witnessing at the moment is the free market taking its course to correct the paths we have mistakenly taken. The system now demands that we learn from our mistakes. For those who have learned something from the past, they will not be affected as badly as those who commit the same mistakes again out of ignorance or arrogance.

Regardless of that, failure is part of the free market system because failure is one of the manifestations of free will. Mahatma Gandhi once said that freedom is not worth having if it does not connote freedom to err. Without failure, the free market cannot function on paper or in practice.

Without failure, the best cannot be found. Without failure, there is an implicit assumption of the equality of results where everybody lives as miserably as the other in a dull monotony: at its center is the equality of poverty. We have seen how such systems failed to incorporate the very basic economic lesson — that individuals respond to incentive. We have seen how that has failed and how the human spirit revolted against it. That failure too is merely a function of evolution embraced by the free market philosophy.

While keeping this in mind, one should be mindful of missing the woods for the trees.

The series of failure across the Pacific and its subsequent ripples spreading globally are not a failure of free market capitalism. It is not a failure of liberty. On the contrary, the series of failure is an automatic reaction against our mistakes. The system is responding because we respond to events around us and that alone shows that the idea of economic liberty with its carrot and stick model works.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider.

Categories
Economics

[1831] Of the quicksand of Keynesianism

Over 70 years after The General Theory on Employment, Interest and Money was published, Keynesianism now holds sways over macroeconomic thinking. Neo-liberalism almost made Keynesianism as obsolete as communism but the tradition of The General Theory proved to be resilient. Resilient as it may be, there are dangers in following the track of Keynesianism and it is certainly not the only option available out there when it comes to facing economic downturns.

Keynesianism, despite its wide explanation of the economy, is best known as the idea which advocates the state taking an active role in managing the economy. In times of uncertainty, the idea that the government needs to spend to pick up the slack in the economy has again regained currency. The Abdullah administration recently introduced an economic stimulus plan worth RM7 billion, announced by the new Finance Minister Najib Razak, to do just that. The DAP proposed an even bolder move involving spending about 6 folds larger than the planned stimulus.

This happens at a time when the country is expected to experience its 12th consecutive fiscal deficit in year 2009.

During the first tabling of the 2009 Budget, the government projected a deficit of 3.6 per cent of the country’s gross domestic product. With lower energy prices as well as increased expenditure, the deficit can go only higher.

When Keynesians espouse deficit spending, they really mean a counter-cyclical fiscal policy in which the government increases its activities in the economy in times of crisis and cuts down the frictions it causes in the economy in good times. However, too many advocates of the policy, especially politicians, conveniently forget or even do not know what the Keynesian countercyclical fiscal policy is all about.

Not that I am advocating the true form of the Keynesian policy but clearly, many politicians subscribe to the narrative of countercyclical fiscal policy only in times of hardship. In better times, none of the action proposed by Keynesian economics is implemented. The continuous fiscal deficit is a proof to that. In all likelihood, the continuous deficit would merely impose a higher cost of borrowing on the country, forcing future generations to bear the burden of past mistakes.

It is true that fiscal deficit and debt in general is not necessarily bad. If borrowing today offers an opportunity for profits tomorrow, that borrowing might be a good idea. The problem with this country is that the government, instead of truly investing in public goods with more convincing multiplier effects like education, is more interested in investing in white elephants, or in the stock market, as evident in the RM5 billion injection into ValueCap through borrowing. It is things like this that make it imperative for us to be suspicious of politicians who seemingly adhere to the Keynesian school of thought.

It has to be noted that when Keynes wrote The General Theory, he was trying to save capitalism. On the contrary, politicians who inconsistently advocate for Keynesianism are not trying to save capitalism. In times of economic crisis, the political environment could be very dynamic and it is Keynesianism, out of several others, which has the potential of calming the electric atmosphere.

While I lament each time Keynesian economics takes centre stage, its effectiveness in smoothing the downside of capitalism is undeniable. There are side effects however.

The government is expected to finance the deficit and the fiscal stimulus through borrowings. The Finance Minister has indicated that the government will mostly obtain the funds from local sources. This effectively means that private enterprises will have to compete against the government in sourcing for precious capital. With the financial crisis well under way internationally, it is likely that the opportunity for local private entities, especially smaller ones, to borrow from abroad is small, leaving local sources as the only options.

This competition for capital only increases the lending rate as demand increases vis-à-vis supply of loanable funds. This has the potential of crowding out private investment. As a result, the private sector may miss out opportunities in times of a downturn and be unable to be as dynamic as it should during recovery times and during yet another era of exuberance.

Deficit spending may also defeat the purpose of the economic stimulus. With higher interest rates, it makes more sense for individuals to save rather than invest in various value-creation initiatives, with all else being equal.

This, in a way, makes countercyclical fiscal policy unhelpful. At least one paper — by Gordon and Leeper — highlights that. The paper states that “countercyclical policies may create a business cycle when there would be no cycle in the absence of countercyclical policies”.

Furthermore, if Keynesians are interested in fighting business cycles so selflessly, why do they not simply eliminate business cycles altogether?

Instead of trying to smooth out cycles after it happened, the Austrian school of economics seeks to inherently smooth business cycles by instilling discipline in monetary policy. While there is not much data to compare the effectiveness of the two schools, the Austrian theory, if business cycles are of concern, sounds far more superior to the Keynesian countercyclical action.

Finally, despite the level of comfort far too many people have when they confidently say that government spending is the only option available in facing an economic downturn, that statement is absolutely false.

One of them involves private rather than public spending. Malaysians — and East Asians in general — have a tremendous amount of private savings. A report states that the level of savings by Malaysians is well above 30 per cent of income. Policymakers could design a policy which takes advantage of that fact. Indeed, the reduction of worker’s contribution to EPF from 11 per cent to 8 per cent is one policy which takes this path.

Others include permanent tax cuts to encourage businesses and enhance disposable income or even simply let the market eliminate unprofitable ventures made unwisely to give other promising ventures a shot.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider.